Fallout From Esm Failure Felt From Banks To Currency Market

Robert and Ida Bauer, a retired Columbus, Ohio, couple, were on their way to Florida for vacation when they heard Home State Savings Bank had been closed.

``We turned around and came back,`` said Ida Bauer. But it was too late. Money they had saved all their working lives, $16,000, was locked in a Home State account.

Some Ohioans like the Bauers now think about Fort Lauderdale as the place ``where all the trouble started.``

And it`s a lot of trouble. The collapse March 4 of Fort Lauderdale-based ESM Government Securities Inc. eventually led to the most widespread ``bank holiday`` since the Great Depression when Ohio Gov. Richard Celeste closed the state`s network of privately insured savings and loans.

The fallout from the ESM debacle was felt across the country. Tamarac had invested $7 million in ESM Government Securities. Pompano Beach invested $11 million. Toledo, Ohio, invested more than $19 million. Beaumont, Texas, stands to lose as much as $20 million.

On Tuesday, when the dollar took its biggest drop in 14 years against other world currencies, traders even blamed that on worries caused by the Ohio thrift closings.

The savings of 500,000 Ohioans were frozen for the better part of last week. It was the first time the fallout from the biggest failure ever of a government securities dealer had touched a large group of average people.

ESM owes an estimated $315 million more than it can pay to municipalities, S& Ls and other large investors. Previously, the largest securities-dealer failure was that of New York-based Drysdale Government Securities in 1982. Drysdale owed $270 million.

Although all of Ohio`s state-chartered savings and loan associations except Home State got the go-ahead Friday to re-open for limited withdrawals pending their attempts to get federal insurance, there are still problems to be solved.

Regulators are desperately trying to sell Home State. While as many as 18 other institutions reportedly are interested in buying, nothing has been settled yet.

Some financial institutions have offered Home State customers limited loans to tide them over, but many retail and grocery stores are not accepting their checks. Not even the State of Ohio is accepting Home State checks for income tax payments.

Customers can`t pay their bills or meet mortgage payments. They`ve spent their lives building good credit; now it is being ruined.

Cincinnatians as a group describe themselves as conservative. As one native observed, ``All our lives we`ve saved. We`ve gone to the savings and loan to buy our homes and put money away to send our children to college.``

Ohio`s savings and loan crisis was spurred by Home State`s massive debts. The institution could lose as much as $150 million from its investments with ESM.

In a run on Home State before it closed, depositors withdrew at least $150 million. Gov. Celeste called for emergency legislation. The Ohio General Assembly first authorized a new $90 million fund to augment the Ohio Deposit Guarantee Fund -- the private fund that insured state-chartered S&Ls in the state.

But after the Home State run, other privately insured thrift depositors began withdrawing their money from some institutions. On March 15, a week after Home State`s collapse, Celeste shut down the 70 other privately insured thrifts.

Could the Ohio thrift crisis have been avoided and is the state following the right path to recovery? Members of the S&L industry and analysts who follow thrifts say there were better ways to handle the situation.

``In retrospect, he may have overreacted by shutting down all of the (privately insured) companies,`` said Philip Gasteyer, executive director of the U.S. League of Savings Associations in Washington, D.C. ``That legislation already processed a special loan to the fund. That extra support was never really tested.``

Gasteyer said there were various built-in procedures the S&Ls could have implemented.

``Institutions can require a 30-day notice of withdrawals. If there really is a line around the block, the S&L can say, `we`ll honor requests for $500 and then you have to go through the line again.` That has a way of taking the wind out of the panic psychology.``

Loren Mintz, president of Cypress Savings in Plantation, has some insight into the Ohio S&L industry. He formerly was president of Shaker Savings Association, a thrift near Cleveland.

``I was saddened by the whole thing. It was pathetic,`` Mintz said.

He describes the Ohio thrifts as `a lot of mom and pop` operations.``

``There was nothing wrong with it. The Ohio Deposit Guarantee system under normal circumstances was perfectly adequate,`` Mintz said. He blames the state, which regulated the system, for not getting tougher with Home State.

David Cates, president of Cates Consulting Development Inc. in New York -- a firm that analyzes the banking industry -- disagrees.

``The (private insurance) was inadequate. The fund itself was exhausted by losses of one institution. The fund ought to be stronger than that,`` he said.